To calculate marginal revenue, evaluate total revenue and the revenue change at the instance of producing an extra unit. The marginal revenue equates to the prices of all new units produced, after considering revenue change.
- Calculate revenue
Calculate the sales prices of the items you sell. Using your internal documents, find out the total quantity sold. These documents are the invoices that are sent to the customer when the sale is agreed upon. Sum up all the individual amounts to get the total quantity of sold goods. Multiply the quantity and the sale price to get the total revenue.
- Evaluate revenue change
Calculate the change in revenue when production increases by one unit. For instance, if the revenue is $100, and the revenue after selling the extra unit becomes $110, the change in revenue would be $10.
- Find marginal revenue
The value obtained by the production of an extra unit is the marginal revenue. The need to reduce the price to increase sales is a method of making sure that marginal revenue value is accurate. In the previous case, marginal revenue equals the price. However, in a competitive marketplace, a business must decrease pricing to encourage more consumers to purchase their product or service. When businesses reduce pricing, they seek to produce additional units for sale as long as they realize profit from additional production.